Prospects Brighten But Challenges Remain
BMI View: President Nursultan Nazarbayev's ongoing effort to lift a moratorium on the issuance of new mineral exploration licenses is a boon for the mining sector. Nevertheless, we caution that the lack of a succession plan will continue to undermine investor confidence and weigh on the political risk profile of Kazakhstan.
Despite the ongoing threat of social instability, we believe Kazakhstan ' s mining sector is one bright spot worth casting an eye on. Apart from the fact that the country is one of the most resource-rich countries in the Commonwealth of Independent States (CIS) , with substantial deposits of coal, iron ore and bauxite, we believe recent development in the mining space is a cause for optimism. In a bid to loosen the grip of local clans on the country ' s mineral wealth, President Nursultan Nazarbayev has recently urged his government to lift a four-year moratorium on the issuance of new mineral exploration licenses in the country. We believe the removal of the moratorium would pave the way for considera ble investment into the mining sector , which has continued to witness lacklustre growth owing to the dominance of influential clans in the region. Indeed, Kazakhstan has the potentia l to become one of the most attractive countries for frontier mining. The strategi c location of the country allow mining companies easy access to the key commodity consumers such as China and India, whose insatiable appetite for resources has powered the surge in commodity prices over the past decade. Although the country holds uranium reserves second only to Australia, along with stel lar deposits in other minerals, it is estimated that Kazakhstan receives less than 1% of global investment in metals exploration. According to official data, less than 15% of Kazakhstan ' s explored metals reserves are currently in production, with only 75 out of 282 i dentified gold deposits and 19 of 55 iron ore deposits in operation.
|A Tough Road To Riches|
|Kazakhstan - Coal & Metal Mines|
Lack Of Succession Plan A Salient Risk To Mining Investment
Nevertheless, we caution that investors looking to tap into the riches of Kazakhstan remain vulnerable to the persistence of several headwinds. Chief among these include antiquated infrastructure, unreliable power supplies and perhaps most importantly, the lack of a concrete and transparent succession plan that will continue to weigh on the country ' s political risk profile. President Nazarbayev is 72 years old and reportedly in poor health . Furthermore, the political system which he has built up around his cult of personality requires a delicate balancing act of rival clan interests behind the scenes. Nazarbayev frequently shuffles members of parliament to different duties, or re-defines entire ministries in an attempt to prevent any one clan, personality or interest group from getting too powerful and challenging his position. As such, we highlight that the likelihood for a power vacuum in the event that Nazarbayev passes away or is otherwise unable to lead is very high. The resulting power struggle would have serious implications for the country's investment climate and longer-term economic stability. The worst-case scenario would involve a number of competing clans in a power grab following the untimely death or incapacitation of Nazarbayev. Given that Kazakhstan is prone to a high degree of regionalism, the lack of a centralised power structure would result in inter-clan fighting and we could not rule out violence perpetuating in this scenario.